2007 (8) TMI 497 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Explanation to Section 73 of the Income Tax Act.
2. Treatment of share trading loss as speculation loss.
3. Allocation of expenses towards proprietary share activity.
4. Procedural aspects regarding Tribunal's order pronouncement and inherent powers.

Issue-wise Detailed Analysis:

1. Applicability of Explanation to Section 73 of the Income Tax Act:
The assessee was aggrieved by the CIT(A)'s decision confirming the Assessing Officer's (AO) action in invoking the provisions of Section 73 and treating the loss in trading of shares as speculation loss. The AO noted that the assessee was engaged in the business of investment and trading in shares and securities and held that the assessee's case was not covered under the exception provided in Explanation to Section 73. The AO relied on judicial precedents including CIT v. Sun Distributors & Mining Co. Ltd., CIT v. Arvind Investments Ltd., and Eastern Aviation & Industries Ltd. v. CIT to treat the share trading loss as speculation loss. The CIT(A) upheld this view.

2. Treatment of Share Trading Loss as Speculation Loss:
The Tribunal examined whether the business loss should be considered for determining the applicability of the exception clause of Explanation to Section 73. The assessee contended that business loss under the head 'Income from business or profession' had to be ignored for determining the gross total income. However, the Tribunal referred to the Special Bench decision in Concord Commercials (P.) Ltd. and other relevant cases, concluding that business loss being negative profit cannot be ignored. The Tribunal also considered the decision in Yucca Finvest (P.) Ltd., which supported the view that absolute figures should be compared for determining whether the assessee-company's main income was from business or other sources.

3. Allocation of Expenses Towards Proprietary Share Activity:
The AO attributed expenses in the ratio of sales to total turnover to arrive at the net loss. The CIT(A) restored the matter to the AO to be decided after considering the submissions made by the assessee-company and as per the provisions of law. The Tribunal did not delve deeply into this issue, as the primary focus was on the applicability of Explanation to Section 73.

4. Procedural Aspects Regarding Tribunal's Order Pronouncement and Inherent Powers:
The Tribunal addressed the procedural contention raised by the assessee regarding the oral pronouncement during the course of hearing. The Tribunal clarified that an oral pronouncement is not an order unless it is signed and dated by the members constituting it. The Tribunal cited rules 34 and 35 of the ITAT Rules and various judicial precedents, including the Supreme Court's decision in ITAT v. V.K. Agarwal, to assert that an order must be in writing and communicated to the parties. The Tribunal also emphasized its inherent powers to re-fix cases for clarifications to prevent miscarriage of justice, citing decisions from various High Courts supporting the inherent jurisdiction to rectify mistakes.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the AO's and CIT(A)'s decisions regarding the applicability of Explanation to Section 73 and the treatment of share trading loss as speculation loss. The Tribunal also addressed procedural aspects, affirming its inherent powers to ensure justice.